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Bigger Bucks for Savvy Companies

Cause-related marketing can be surprisingly effective.

"Cause-related marketing" refers to a company that associates itself with a certain cause. It may do so out of the goodness of its heart or to court the favor (and dollars) of consumers. For example, several companies, including Apple (NASDAQ:AAPL), American Express (NYSE:AXP), Motorola (NYSE:MOT), and Gap (NYSE:GPS), have been involved in the (RED) campaign, raising millions of dollars to fight AIDS, tuberculosis, and malaria. (Read about it here.) Similarly, a company may engage in socially responsible practices, such as buying supplies from providers who pay employees fair wages. This, too, can appeal to consumers -- and also motivate and help keep employees.

Just how effective are such corporate strategies? Well, at Slate.com, Ray Fisman recently reviewed the findings of Harvard researchers Michael Hiscox and Nick Smyth, who studied consumer behavior at Manhattan's ABC Carpet and Home store. They learned that if an item had a label that said it was produced under "fair labor" practices, sales jumped. Moreover, if they raised prices on those products, people bought even more. Specifically, after they added "fair labor" stickers to some towels and candles, sales of those items increased by 11% versus unstickered brands (for towels) and by 26% for candles. After they then raised the prices of the "fair labor" items by 10%, sales of the towels rose 20%, with those of the candles rising 30%.

Gay-friendliness can pay offAnother recent study, conducted by New American Dimensions and the Asterix Group, found that more than 70% of gay and lesbian consumers will pay more for products offered by companies that have reputations for supporting the gay community. (If you're wondering just what kind of support we're talking about, the survey found that 79% of respondents looked for companies offering domestic-partnership benefits, and 46% gave the nod to supporting the gay community with donations.)

The survey also looked at a few product categories. For instance, in the auto industry, the favorite brands were Toyota (NYSE:TM), Honda, and Ford (NYSE:F). But Subaru, Volvo, and Volkswagen were deemed "best for the GLBT community." This suggests that Toyota, Honda, and Ford might be able to boost sales by courting the gay community more. Indeed, Ford is taking steps in that direction, recently pledging $250,000 toward building a gay community center in Michigan. According to Ford's press release, the grant "is among the largest donations ever made from a Fortune 500 company to a gay, lesbian, bisexual and transgender (GLBT) organization."

A company with less work to do is Bank of America (NYSE:BAC), which was deemed the "best bank for the GLBT community" and was also cited most often as the respondents' primary bank.

The future is brightEven more encouraging for companies interested in boosting their business via associations with good causes is this: Young people are especially open to such strategies. According to the 2006 Cone Millennial Cause Study, which examined cause-related marketing among those born between 1979 and 2001, 61% of these young people "feel personally responsible for making a difference in the world," and 78% "believe that companies have a responsibility to join them in this effort." In addition:

83% will trust a company more if it is socially/environmentally responsible.

69% consider a company's social/environmental commitment when deciding where to shop.

CaveatsOf course, things are not always as simple as they may seem. The "fair labor" experiment was conducted in an upscale store that sports more civic-minded consumers than a more mainstream store. The findings may have been more muted in a different setting.

And when it comes to attracting certain population subsets, it's useful to note that the survey of gay Americans segmented the gay community into several distinct groups. Just as a company shouldn't assume it can attract all African-American or female or boomer consumers with the same advertising campaign, the gay community shouldn't be oversimplified, either. With extra money, some segments are more interested in remodeling their homes, while others are keener on saving for retirement. These findings have ramifications for companies from home improvement retailers to mutual fund companies.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Bank of America is a Motley Fool Income Investor recommendation, and Gap is recommended by both Inside Value and Stock Advisor. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian